JOURNALS OF ROBERT MAAS

Friday, December 06, 2013

IS TAX AVOIDANCE NOW DISHONESTY?

BLOG 142

IS TAX AVOIDANCE
NOW DISHONESTY?

What
is tax avoidance?I wish I knew.BBC Panoramatell me that it’s usingthe
patent box introduced by the government (with all party support) in 2012.Actionaid tell me that it is using double tax
agreements to avoid paying tax twice.The
Times tells me that it is not paying tax in the UK because you’re making sales
in Ireland (and paying Irish tax on them).The Public Accounts Committee tell me that it is over-paying to rent
your shops so that you make a loss.Personally, I don’t think that it is any of those.Fortunately, nor does HMRC.

I
see tax avoidance as a moral issue; it is when other people reduce their tax
bills in ways in which you disapprove.But we tend to disapprove of different things.I disapprove of complex schemes designed to
create an artificial loss.Disapprove
morally that is; if one of my client wants to use such a scheme, I will try to
find him one as I don’t think that I have any right to impose my moral compass
on someone else and neither do I think that I should challenge his moral view.

Few
people like to pay tax.I suspect that
if people are offered a choice of two ways to achieve something, one of which
involves a significantly greater tax liability than the other, most will choose
to pay as little as possible.I think
that’s human nature.I am happy to
assume that, for example, none of the journalists who write about tax
avoidance, route any of their earnings through a company or, if they do, use
the company to transform highly taxed earnings into lower taxed dividends, as
it would obviously be hypocritical to lambast tax avoidance by others while
avoiding tax oneself.

I
avoid tax on my books.I write them for
Dawn Publishing Ltd but do not receive earnings from that company and all of
its shareholders are basic rate taxpayers.Accordingly the earnings are taxed at 21% only, instead of the 40% that
I would pay if I did not put my writings through Dawn.I’m not ashamed.But I wouldn’t pretend that it is not tax
avoidance.My difficulty in defining the
term is not because I can’t recognise it, but because I can’t assess its
breadth.Everyone has their own personal
definition, which I suspect is driven either by what they would themselves be
prepared to do if they had the opportunity or by jealously - it is unacceptable
for people to avoid tax because I don’t have the opportunity to do it myself
even though I would if I could.

Until
a couple of weeks ago, there was no real need for a definition.But now HMRC have revised their fit and
proper person test for charitable trustees and the new test outlaws some of
those who have been involved in tax avoidance.HMRC now say that “Factors that may lead to HMRC deciding that a manager
is not a fit and proper person include, but are not limited to, where
individuals …

·have
used a tax avoidance scheme featuring charitable reliefs or using a charity to
facilitate tax avoidance

·have
been involved in designing or promoting tax avoidance schemes”.

They
suggest that charities ask potential trustees (and senior managers) to certify
that they have not done either of these things.The charity doesn’t actually have to send the certificate to HMRC (just
keep it available in case HMRC ask) but each trustee of a new charity does have
to certify to HMRC that he has read the guidance of which the form forms a
part.How can anyone sign such a
certificate if he does not know what tax avoidance is?

A lot
of trusts have a charity as the backstop beneficiary.Without such a beneficiary many trusts would
be ineffective for tax purposes.So by
putting money into such a trust, are you using a charity to facilitate tax
avoidance?Indeed if you create a charitable
trust into which you put a capital sum, are you using the charity to facilitate
tax avoidance?Surely you are, as the
whole purpose of creating the trust is likely to be that the charity can
generate tax-free investment income, whereas had you received the income it
would have been taxable.

Accountants
and tax advisors seem to have an even bigger problem.Tax planning is a major part of my work.Is a strategy designed to carry out a
transaction in the way that attracts the least amount of tax, a tax avoidance
scheme?On the face of it, yes.That is precisely what tax planning aims to
do.So in future accountants cannot
apparently be charity trustees.

When
the legislation was introduced, the government said, “Fit and proper” is not
defined in the legislation so takes its natural meaning.HMRC will issue guidance on how to apply this
test.It seems likely that Parliament
envisaged fit and proper meaning honest and competent.That is surely the natural meaning of the
phrase.It is unreasonable for a charity
to be recognised as such for tax purposes only if its trustees lean over
backwards to pay as much tax as possible.But if HMRC now intend to use entering into, or recommending, tax
planning as an indication of dishonesty, that seems to be what is
happening.Of course, HMRC will not
adopt the definition of tax avoidance that has been formulated by the BBC,
Actionaid or the Times – at least for the time being!But that is not the point.They are asking trustees to confirm that they
have not been involved in tax avoidance without providing a definition of what
tax avoidance is – and, indeed, without giving any guidance as to what they
perceive it to be.How can anyone be
expected to sign such a certificate?